Customer Relationship Management: Concepts and Tools CUSTOMER RELATIONSHIP MANAGEMENT: CONCEPTS AND TOOLS Chapter 9 Managing The Customer Lifecycle: Customer

Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools

CUSTOMER RELATIONSHIP MANAGEMENT:CONCEPTS AND TOOLS

Chapter 9Managing The Customer Lifecycle:

Customer Retention And Development


3 stages of the customer lifecycle

1. Customer acquisition2. Customer retention

aims to keep a high proportion of current customers by reducing customer defections

3. Customer developmentaims to increase the value of those retained customers to the company


Contents of a customer retention plan

1. Which customers should be targeted for retention?

2. What customer retention objectives should be set?

3. What customer retention strategies will be used?

4. How will the performance of the retention plan be measured?


Measuring customer retention

The number of customers doing business with a firm at the end of a financial year expressed as percentage of those who were active customers at the beginning of the year

However What is an active customer? Is a year always the appropriate time frame?


The appropriate time frame

Depends on re-purchase cycle found in the industry. Insurance policies are renewed annually If the normal car replacement cycle is four years,

then retention rate is more meaningful if it is measured over four years instead of twelve months


Three measures of customer retention

Raw customer retention rate. the number of customers doing business with a firm at the

end of a trading period expressed as percentage of those who were active customers at the beginning of the period.

Sales-adjusted retention rate. the value of sales achieved from the retained customers

expressed as a percentage of the sales achieved from all customers who were active at the beginning of the period.

Profit-adjusted retention rate. the profit earned from the retained customers expressed

as a percentage of the profit earned from all customers who were active at the beginning of the period.


Retention issues

Retention measures should be made with an understanding of customer profitability issues

The fundamental purpose of focussing CRM efforts on customer retention is to ensure that the company maintains relationships with strategically significant customers.

It may not be beneficial to maintain relationships with all customers. Some are too costly to serve strategic switchers constantly in search of a better deal not strategically significant in roles such as benchmark,

door opener, inspiration or technology partner


The economic argument for customer retention

Purchases grow as tenure grows Customer management costs fall over time Customer referrals grow Premium prices

Customers who are satisfied in their relationship may reward their suppliers by paying higher prices.


Which customers to retain?

Strategically significant customers High life-time value customers High volume customers Benchmarks Inspirations Door openers Technology partners

But… these may also be attractive to your competitors


Commitment and retention

The level of commitment between your customer and you will figure in the decision about which customers to retain. If the customer is highly committed, i.e.

impervious to the appeals of competitors, you do not need to invest so much in retention.

If strategically significant customers are not committed to you, you may want to invest considerable sums in their retention


Why focus on newly acquired customers?

New customers may have greater future life-time value potential than longer tenure customers. evidence suggests that retention rates rise over

time, so if defections can be prevented in the early stages of a relationship, there will be a pay-off in future revenue streams


Two basic strategies for customer retention

Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and ToolsNegative and positive

customer retention strategies

Create exit barriers Enforce the contract Extract switching

penalties

Delight them Create added value Use sales promotions Create social and

structural bonds Earn the customer’s

trust


Positive customer retention strategy 1

‘Wow’ your customers by meeting and exceeding their expectations Create customer delight

Satisfaction plus one Do you understand customer expectations? Do you know which expectations are important? Do you know where the gaps are?


Positive customer retention strategies 2-5

2. Find ways to create additional value for customers Reward (loyalty) programs Customise the offer Customer clubs

3. Sales promotions4. Bonds

Social and Structural

5. Commitment


Reward programs

Co-op dividend > Green Shield Stamps > American Airlines AAdvantage Card >

Nectar

Card-based schemes have changed over time No identification – member’s name Magnetic strip – chip-embedded Solus – networked Company-operated – third-party operated Trivial reward – major reward (5%)


The Tesco Clubcard

Tesco introduced its first loyalty program in 1995, called the ‘Clubcard’ Enabled customers to accumulate points with each purchase that

could be used to obtain discounts off future purchases. The ‘Clubcard’ proved to be very successful.

First, in attracting more customers to Tesco stores. Second, in capturing valuable information from customers with

every swipe of the card, which led to the creation of a powerful database

As a result of this initial success, 108 customer segments were identified and specific offers were made to each high-value customers receive valet parking when they come to

shop and other special privileges. In 1996 Tesco introduced two further loyalty cards, a student card and

a card for mothers, with offers specifically targeted to each group’s needs.


Five types of value from loyalty programs

1. cash value. How much is the reward worth in cash compared to what is spent to obtain it?

2. redemption value. How wide a range of rewards is offered?

3. aspirational value. How much does the customer want the reward?

4. relevance value. How achievable are the rewards?

5. convenience value. How easy is it to collect the credits and redeem them for the reward?


Customize the offer: anything goes

People

Process

Product/brand

Price

Service

Location

Logistics

Communication



Customer Clubs

Swatch the Club The Rolling Stones Fan Club Pampers Parenting Institute Casa Buitoni The Harley Owners Group Sainsbury’s Littleones Club The Volkswagen Club


Sales promotions to promote repeat purchasing

In-pack or on-pack voucher Rebate or cash-back Free premium for continuous purchase Self-liquidating premium Collection schemes


Bonds

Social Positive relationships

between individuals Empathy Responsiveness Reliability

Leads to development of trust and commitment

Structural Investments linking

customer and supplier Financial Legal Equity Technological Process Project Multi-product


Build customer commitment

Create emotional attachment to your product, brand or company

Committed customers are Highly satisfied Believe in the superiority of your product, brand or

company Involved in your product, brand or company Resistant to competitive offers and have a strong

intention to re-buy


Three forms of commitment

Instrumental customers are convinced that no other offer or

company could do a better job of meeting their needs.

Relational customer develops an emotional tie may be with an

individual person, a work group or the generalised company as a whole

Values-based customers’ values are aligned with those of the

company


Commitment to a low involvement product?

1. Product modification add some feature that is highly involving because it

connects to needs, values or interests detergents reformulated to become ‘green’

2. Product association associate the product with some involving issue or

context Buy Mobil and support our Olympians

3. Product repositioning Lucozade became a sports drink Häagen Dazs reinvented the ice cream market by

being adult and sexy


Values-based commitment

Body Shop International John Lewis Partnership Harley Davidson Co-operative Bank Cochlear Virgin Group Holden


…. and then there’s negative commitment too

Nestlé Infant formula in Africa

Shell Brent Spar oil platform to be dumped in the North

sea

Nike Employment practices have been criticised


Good corporate citizenship

1. Giving positive word-of-mouth2. Offering advice on product design3. Reporting dated or tired point of sale4. Wearing your branded clothing5. Taking part in corporate events6. Participating in research7. Policing other customers8. Becoming a shareholder9. Taking role in corporate governance10.Recommending you as an employer


Context makes a difference to retention practices

Number of competitors Corporate culture Channel configuration Purchasing practices Ownership expectations Ethical concerns


KPIs for customer retention programs

1. What is the raw customer retention rate?2. What is the raw customer retention rate in each

customer segment? 3. What is the sales-adjusted retention rate?4. What is the profit-adjusted retention rate? 5. What are the sales and profit adjusted retention rates

in each customer segment? 6. What is the cost of customer retention?7. What is the share of wallet of the retained customers?8. What is the customer churn rate per channel?9. What is the cost-effectiveness of customer retention

tactics?


The role of research

1. Why are customers defecting?2. Are there any lead indicators of impending

defection?3. What can be done to address the root causes?


Lead indicators of defection

Reduced RFM scores Non-response to a carefully targeted offer Reduced satisfaction levels Dissatisfaction with complaint handling Reduced share of customer Inbound calls for technical information Late payment Querying an invoice Changed customer touch points


Core customer development strategies

Up-sell Cross-sell Down-sell Reduce cost-to-serve

Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and ToolsAttributes of CRM-enabled

customer development

1. Use of data-mining to identify opportunities2. Customization3. Channel integration4. Integrated customer communication5. Campaign management6. Event-based marketing

Documents

Customer Relationship Management: Concepts and Tools CUSTOMER RELATIONSHIP MANAGEMENT: CONCEPTS AND TOOLS Chapter 9 Managing The Customer Lifecycle: Customer